Fairfax buys controlling stake in Keg Restaurants; management remains

Jenny Lee and Mike Hager, Vancouver Sun11.18.2013

The Keg restaurant in Windsor, Ont. A Toronto-based insurance company has bought a controlling share in The Keg steakhouse chain from local entrepreneur David Aisenstat after scrapping its plan to buy struggling BlackBerry outright earlier this month.Nick Brancaccio
/ Postmedia News Files

David Aisenstat of the Keg restaurants has sold a controlling interest in his restaurant chain to Fairfax Financial.Ward Perrin
/ Vancouver Sun Files

VANCOUVER - Longtime B.C. restaurateur David Aisenstat has sold controlling interest of The Keg steak house chain to Toronto-based Fairfax Financial Holdings.

Fairfax, which opted to invest in BlackBerry debt rather than buy the troubled firm outright earlier this month, will take control of 51 per cent of Keg shares in January. Aisenstat will keep the remaining stake in the business and continue running the 102-restaurant chain.

Financial terms were not disclosed, but the deal is believed to be worth more than $150 million.

David Aisenstat, 57, said he started talking with Fairfax several years ago but their commitment solidified recently. “They’ve been pretty keen on this industry for a couple of years now.”

He said there are “no real material plans” to change The Keg’s concept.

“It was just the opportunity to partner with a company like Fairfax and the people that run Fairfax,” Aisenstat said. “It just positions us better in the company to take advantage of opportunities in our industry.”

The Keg closed three restaurants in the U.S. and one in New Westminster this year.

“That’s just the pattern of our business,” Aisenstat said. Some leases came up, but other restaurants are under construction. A new Montreal Keg will be opening in a few weeks, and new restaurants in Toronto, Guelph and Alberta will open within the next year.

“We’re doing fine,” Aisenstat said. The last quarter was “a little flat but we’re selling more than we ever have.”

Nevertheless, “expanding into the States — that’s been tough in the last five years,” Aisenstat said. Expansion is now focused on Canada for the moment, he said.

Fairfax’s next moves are worth watching.

“You’ve got a major investor going very long on casual dining restaurants in Canada,” said Yuri Fulmer, FDC Capital Partners CEO, who has long-standing experience in the casual dining sector. Fairfax is moving into the restaurant business in a big way, he noted.

“When you think of the percentage of casual dining meals that Fairfax will now own, it’s got to be close to a majority. If you go for casual dining, chances are it’s a restaurant owned by Fairfax. The Keg is their entry into premium casual.”

In a deal announced two weeks ago, Prime Restaurants becomes a wholly owned subsidiary of Cara Operations with Fairfax holding an undisclosed ownership in Cara, according to the Financial Post. Cara will add East Side Mario’s, Casey’s and other restaurant chains to its other properties, which include Swiss Chalet, Milestones Grill & Bar, Harvey’s, Montana’s Cookhouse, and Kelsey’s.

In B.C., The Keg and Cactus Club top the premium casual full-service category with Earls, Milestones and Moxie’s being in the mid-tier, and Denny’s and Swiss Chalet at the bottom end, Fulmer said. White Spot is also a major player.

“If there’s a teary moment, it’s that an entrepreneur is no longer in control of a great success story,” Fulmer said.

The Keg had 80 restaurants when Aisenstat took over the company 16 years ago. “We’re now doing two and a half times the sales,” Aisenstat said.

The Keg employs 9,500 people and has $500 million in annual sales. Restaurants in metro Toronto, Vancouver, Montreal, Calgary, Edmonton, Seattle, Dallas, Denver and Phoenix are corporately owned and operated. Restaurants in outlying areas are franchised. The chain has 15 U.S. restaurants.

Keg Restaurants Ltd. pays a royalty on sales to Keg Royalties Income Fund, which holds trademarks and intellectual property used by the chain.

The Keg is one of several successful restaurant chains with head offices in B.C.

Privately held Cactus Club, which two former Earls restaurant waiters opened in North Vancouver 25 years ago, now owns 25 restaurants in B.C. and Alberta and will be opening in Toronto next year. The Fuller family, which owns Earls restaurants, is a minority silent partner.

Earls, a 30-year-old family-owned chain, has 65 restaurants across Canada and four in the U.S. It will be opening in Miami next year.

None of The Keg’s competitors appear to be trying in bring in capital, Fulmer said.

Nationally, although sales at table-service restaurants improved in Q3, operators remain cautious compared to quick service operators, according to a Canadian Restaurant and Foodservices Association outlook survey.

In B.C., the upscale casual category is up eight per cent in dollar sales from May to September compared to the same period last year, according to Ian Tostenson, president and CEO of the B.C. Restaurant and Foodservices Association.

The Keg was arguably Canada’s first national casual dining chain after it was founded in North Vancouver in 1971 by George Tidball, who had brought McDonald’s north from the U.S. in the ’60s. Aisenstat, a former Keg director, bought the company in 1997 for a reported $48.5 million from Whitbread, a U.K.-based brewing conglomerate.

During Tidball’s ownership of the Keg, Aisenstat and his late father, Hy Aisenstat, founder of the upscale Hy’s Steakhouse chain, had been among its large shareholders.

Comments

We encourage all readers to share their views on our articles and blog posts. We are committed to maintaining a lively but civil forum for discussion, so we ask you to avoid personal attacks, and please keep your comments relevant and respectful. If you encounter a comment that is abusive, click the "X" in the upper right corner of the comment box to report spam or abuse. We are using Facebook commenting. Visit our FAQ page for more information.

A Radio-Canada reporter has been arrested for alleged criminal harassment while pursuing the subject of a story. According to Radio-Canada, reporter Antoine Trépanier was arrested Tuesday night by Gatineau police. He was released on a promise to appear in court. Trépanier was called by Gatineau police Tuesday evening and an officer requested that he come […]

Almost Done!

Postmedia wants to improve your reading experience as well as share the best deals and promotions from our advertisers with you. The information below will be used to optimize the content and make ads across the network more relevant to you. You can always change the information you share with us by editing your profile.

By clicking "Create Account", I hearby grant permission to Postmedia to use my account information to create my account.

I also accept and agree to be bound by Postmedia's Terms and Conditions with respect to my use of the Site and I have read and understand Postmedia's Privacy Statement. I consent to the collection, use, maintenance, and disclosure of my information in accordance with the Postmedia's Privacy Policy.

Postmedia wants to improve your reading experience as well as share the best deals and promotions from our advertisers with you. The information below will be used to optimize the content and make ads across the network more relevant to you. You can always change the information you share with us by editing your profile.

By clicking "Create Account", I hearby grant permission to Postmedia to use my account information to create my account.

I also accept and agree to be bound by Postmedia's Terms and Conditions with respect to my use of the Site and I have read and understand Postmedia's Privacy Statement. I consent to the collection, use, maintenance, and disclosure of my information in accordance with the Postmedia's Privacy Policy.